Special dividends surge fourfold as tax increase looms in U.S.

Companies from Wynn Resorts Ltd. to IDT Corp. are paying special dividends at four times the pace of last year, helping investors stay a step ahead of the taxman with rates poised to jump in 2013.

From the end of September to mid-November, 59 companies in the Russell 3000 stock index declared a one-time cash payment to shareholders, up from about 15 in the year-earlier period, according to data compiled by Bloomberg. More than a dozen said they acted because of a pending dividend-tax increase.

Congress is poised to let the rate on dividends, which was lowered to 15 percent during the George W. Bush administration, increase after President Barack Obama won a second term on a pledge to exact more revenue from top earners. Obama highlighted low levies on dividends and capital gains as one reason Mitt Romney, his Republican opponent with an estimated $250 million fortune, paid a lower income-tax rate than average workers.

“It’s a foregone conclusion the rates are going up -- it’s just a matter of how high they go,” said Todd Lowenstein, a Los Angeles-based money manager with HighMark Capital Management Inc. “When you know that 15 percent tax rate is going away and you have excess cash buildup, it makes sense to return some of it back to shareholders now.”

If Congress takes no action, the dividend tax will revert to the ordinary income rate, which tops out at 39.6 percent. Companies, which according to data compiled by Bloomberg are sitting on $3 trillion of cash, can afford to give back to shareholders and create some goodwill by showing they’re attuned to possible higher taxes, Lowenstein said.

‘Thanking Us’

It worked for Commerce Bancshares Inc., Charles Kim, chief financial officer of the Kansas City, Missouri-based bank, said in a telephone interview. Happy shareholders called and sent e-mails immediately after the bank declared a $1.50 a share one- time payment on Nov. 2, its first-ever special dividend.

“They weren’t asking for it beforehand, but they certainly were thanking us for it afterward,” Kim said. About half of the bank’s shareholders are retail investors, and “it’s very likely for a good portion of our shareholders their tax rates on dividends will be going up.”

IDT, a Newark, New Jersey provider of prepaid mobile-phone calling cards, went a step further, pulling some of its dividend for next year into this one. The company canceled its 15-cent quarterly payout for the rest of the fiscal year that began in October and instead paid a 60-cent special dividend this month to lock in the lower tax rate.

“Our stockholders are best served by paying this dividend now,” Chairman and Chief Executive Officer Howard Jonas, who owns a 23 percent stake in the company, said in a statement.